The Day Ahead: Bears Will Be Upset

Now, let's get this poppin'! For me, earnings season normally sets off something beastly. It's as if a switch flips, and I morph from someone who would shovel your snow for free into a person who would laughingly steal your lunch money and then run through a steel wall.

So, instead of subjecting you to all sorts of filler words and creative jargon, I figured I'd try and convey my emotions at this very early stage of earnings season. Here goes.

Broad Questions, and Thoughts Ready to Be Uncorked

First, did the third quarter constitute a sort of earnings-cycle bottom? If so, will the alleged re-acceleration in the following two quarters be enough to stomp out pesky concerns about a market upheaval driven by the impending February debt-ceiling debate?

Second, remember: We did not have a disastrous earnings-warnings season. In fact, companies such as W. W. Grainger (GWW) and Texas Instruments (TXN) -- via monthly sales reports and a December pre-earnings issue, respectively -- suggested global operating conditions have stabilized, if not incrementally improved.

Also, to what extent is China's recovery housed inside the fourth-quarter financials and 2013 outlooks? Potentially dubious economic reports from each country may have somewhat filtered into SEC filings, as hinted by Nike's (NKE) earnings.

Here's another thought: What do sales trends in a "stabilized" Europe look like?

In addition, it seems people are somewhat forgetting the operational "tailwind" of deflationary input costs.

Finally, is this the type of earnings season that sees investor confidence expand into February? Or, alternatively, will any optimism be short-lived, thus demanding that you be prepared to jump from a plane as it's still taking off?

Four Reasons to Be "Constructively Bullish"

1. Rampant fear about the future had been clouding near-term reasons to be bullish. Fear, plus no love for the prospect of positive developments, equals opportunity.

2. "Fiscal cliff" certainty, by extension, is very likely to induce different executive commentary from what we saw in the second and third quarters of 2012. In a market dominated by electric sucking machines, don't disregard the power of executive tone on stock prices.

3. The NYSE short ratio was near a five-year high to start the week, as I noted Monday. The market continues to wager against a positive earnings season, and if my suspicions hold true regarding how those reports will start off, welcome to short-covering.

4. I don't think Monday and Tuesday's market action pointed to the smart money dumping newly entered long positions, given that leading stocks and ETFs have held convincingly near 10-day moving averages.

What the First Day of Earnings Told Me

Alcoa (AA): Low aluminum prices were mentioned, but with no reference to the impending new leg down -- which feeds in to the above bullish views. In addition, the global aluminum forecast came in above where many of my contacts had it -- and, again, the tone around the number was opposite to that of the third-quarter release, when the 2012 outlook was reduced by 1%.

WD-40 (WDFC): For the fiscal first-quarter report, guidance for fiscal 2013 (ending August) was nicely to the upside and above consensus. Management also said the cost of goods sold came in "relatively stable" and that the margin goal had been hit. For further illustration, see these improvements in year-over-year sales gains by segment and region:

By contrast, in the fiscal fourth quarter, management said it was "disappointed" in that year's results, and that it was only "starting to see some recovery in the markets."

A Final Word

Still, I reiterate: Buy into Wall Street's ridiculous bullishness on consumer discretionary at your own risk. GameStop (GME) is a perfect example of why you should be short sector dogs and withholding your appetite for most fundamentally superior names. I'm personally looking for a further sector re-valuation. I'm also concerned about Best Buy's (BBY) holiday sales report, which is set for release this Friday.

But, overall, my final take is this: The bears will be upset Wednesday.

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